Recession to ‘bottom out’ by early 2010

DAVY Research is projecting in its latest economic assessment that the recession will bottom out early in 2010 and that prospects for an economic recovery are beginning to emerge.

Forecasts from the Central Bank predict the economic decline will be of the order of 8.3% in 2009 and that signs of recovery will start to emerge in the second half of 2009.

It is still forecasting negative growth in 2010 of 2.7%, with modest annual growth kicking in for 2011, provided the global economy picks up, the bank said.

Rossa White, economist with Davy Research, said yesterday there were tell- tale signs the slowdown in the economy was easing.

Tax revenue, “one of the timeliest indicators” of the Irish economy, is looking less under pressure.

“Having done some further analysis of last week’s data, we are happy it has finally stabilised,” he said.

Tax receipts mirror the trend of an economy that has been shrinking at a slower pace from about February or March onwards, Mr White said.

At this stage, the recession is ongoing but far less severe, which in effect is “the first stage of the recovery”, he claimed.

“We still expect Ireland to bottom in early 2010, at least one quarter after the rest of the euro area.”

Stripping out corporation tax, annual comparisons have improved, the Davy economist said.

Government changes to tax rates and payment dates make the task of spotting turning points in tax revenue more difficult, but even allowing for that Mr White says he sees grounds for optimism. The Government brought forward payment dates for corporation tax this year that has resulted in a flattening of the monthly year-on-year comparisons of total tax revenue since May.

He says, however, that after stripping out the distortion of corporation tax the overall tax picture is starting to prefigure a return to better times.

The overall 20.9% decline in July was the smallest in six months and compared with -21.3% in June, -21.4% in May and -22.2% in April.

VAT is probably the one category of tax revenue that is reasonably safe to seasonally adjust. Rates have not changed much in recent years and even then the adjustments have been marginal, he said.

VAT receipts have been rising month-on-month in recent months having collapsed in line with retail sales between March 2008 and April 2009. That suggests consumer spending may not have recorded a significant double-dip after the budget income tax hikes.